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OEMs Say Mature Northeast Asia Market Primed For Crossover Jets

Encompassing economies such as Japan, South Korea and Taiwan, northeast Asia (defined here as also including Hong Kong, Macau, Mongolia and North Korea) is becoming a key sales battleground for crossover narrowbody jet manufacturers. All three of the aforementioned countries have populations with a propensity to travel, often on business.

Boeing Commercial Airplanes’ vice president of marketing, Randy Tinseth, was recently reported as saying that the increasing demand for low-cost travel will drive fleet renewal orders in northeast Asia for the foreseeable future. Moreover, he believes that because the northeast Asia market is more mature than many others, a majority of the new aircraft delivered over the next 20 years will actually be for replacement rather than growth.

However, greater segmentation of the single-aisle market is occurring in every region, creating opportunities for crossover narrowbody jets to pick up a sizable portion of new aircraft orders.

Cesar Pereira, vice president Asia-Pacific, Embraer Commercial Aviation, certainly sees potential for the company’s new models. “The E-Jet E2’s value proposition across the Asia-Pacific region is its ability to enable airlines to sustainably develop routes to secondary or tertiary cities. These are routes that can potentially bypass the major metro airports such as Tokyo and Osaka [Japan], which are heavily congested,” he notes. “This enables airlines to achieve sustainable growth without being constrained by infrastructure bottlenecks, while offering passengers more nonstop flights.”

His optimism has some foundation, given the presence of first-generation E-Jets in Japan with J-Air and Fuji Dream Airlines, and with Mandarin Airlines in Taiwan. Assessing these markets and that of South Korea, Pereira outlines how crossover narrowbody jets could make a difference for airlines and passengers.

“Overall in Japan, markets served by narrowbodies can see their frequencies increased by up to 30% with crossover narrowbody jets. For instance, apart from Osaka, there is the potential to stimulate secondary hub development at Kobe and Ibaraki with increased frequency,” he observes. “Kobe is an accessible alternative to Kansai International Airport to serve the lucrative Osaka catchment area, being only 28 min. from Osaka Station to Sannomiya Station by Japan Rail (JR) train or 18 min. from Sannomiya Station to Kobe Airport by the Port Liner train.

“As for South Korea, crossover jets are ideal to connect Seoul to secondary cities,” Pereira adds, noting that this applies to such cities at home and in Japan. “Most markets served with less than daily frequencies with large narrowbodies could be increased to daily flights.

“Taiwan is no different,” he continues. “Crossover narrowbody jets can connect secondary destinations in Japan directly to Taipei, but also help to develop Taipei as a hub to connect southeast Asia to Japan in a very efficient way. However, a hub is only competitive if it can offer frequencies and convenient connecting times, enabled only by aircraft with the right size.”

These observations are regardless of airlines’ business models. Sukhoi Civil Aircraft Co. (SCAC) and its partner Superjet International (SJI), however, agree with Tinseth regarding low-cost travel as a major driver and believe crossover jets can make their mark using this model.

“The low-cost carrier (LCC) model is under a process of development. Airlines adopting a LCC philosophy are now engaged in a trade-off between the ultra-LCC scheme and a less stressed concept offering better passenger comfort and services,” the two companies state. “The success of this model is moving today toward the East, where important players are already present with good growth margins. Considering middle-density markets, a mixed fleet composed of narrowbody and ‘crossover narrowbody’ or bigger regional jets is the right choice for LCCs’ fleet planning.

“Airlines often operate [crossover] jets to open new low-yield routes to stimulate the traffic. Once the market is mature, airlines swap to [large] narrowbody operations,” the SCAC/SJI team adds.

Mitsubishi Aircraft Corp. has had support from its “home” airlines, with Japan Air Lines ordering 32 MRJs to follow launch customer All Nippon Airlines, which has 15 MRJ90s on order. However, even with its intimate knowledge of the region’s travel characteristics—culture, price sensitivity, demographics—the company has yet to make inroads into neighboring countries

The other main competitor, the Airbus A220, has a presence in the region with Korean Air. The carrier has 10 Airbus A220-300s on firm order, eight of which have been delivered.

The SCAC/SJI view of travel in northeast Asia is that the passenger markets are becoming increasingly sophisticated. “In general, passengers are looking for a better flight experience: more space, no luggage restrictions, more comfort, more technology. The Superjet 100 is perfectly suitable for domestic mid-density routes as well as several short-haul international ones,” the companies explain.

“In northeast Asia, convenient schedules, comfort and price are on top of passengers’ list of priorities when booking a flight,” says Embraer’s Pereira, echoing some of the SCAC/SJI points. “The crossover narrowbodies are specially designed to address these three characteristics. J-Air operates its E-Jets out of Osaka Itami Airport and Fuji Dream Airlines does so from Nagoya, and passengers value the ability to fly to secondary cities without having to go through Tokyo.

“Crossover jets can perfectly match capacity to demand, giving airlines flexibility,” he adds. “With more departure options, passengers will always find one that suits their needs, while the airlines will be able to increase market presence, strengthen brands, stay competitive and block new entrants.”

For any of the region’s airlines aiming to add crossover jets to their fleets, in addition to each of the OEMs that have leasing companies among their customers, a range of financing options is available. SuperJet International and Sukhoi Civil Aircraft Co. say they have “a solid financing network providing financial services and packages available for different countries on customer request.” These options include some non-Russian banks, the companies report. Also, export credit is a potential option with export credit agencies (ECA) available as potential partners. “We are prepared to arrange the financing scheme according to the customer needs and peculiarities, offering mainly financial leases but open to structure any other kind of financing,” the SCAC/SJI team confirms.

Embraer has a similar story for its potential northeast Asia clients. “The E-Jets family, current and E2, enjoys an excellent reputation within the financing community. Currently all financing options are available for the E-Jets—commercial banks, capital market, ECAs (such as BNDES) or more than 30 lessors that own and manage more than 500 E-Jets globally. All these options apply to this region,” Pereira says.

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